Alaskan Airlines
SYST660
Airline Operating Costs and Airline Productivity
Lorenzo Flores
Alaskan Airlines
Overview
 It is a Network Legacy Carrier (NLC).
 It is covering regional (Horizon),
domestic, and international services.
 Has different types of aircraft (Q400s
& B737s)
 Has premium class & mileage program
 It is codeshare member (one world)
Alaskan Airlines
Terms
 RPMs = Revenue Passenger Miles
∑(# of PAX per flight i)(distance flown by flight i)
 ASMs = Available Seat Miles
∑(# of seats per flight i)(distance flown by flight i)
 RASM = Revenue per Available Seat Mile
(total revenue)/ASM
 CASM = Cost per Available Seat Mile
(total operating expenses)/ASM
 Yield = average fare paid per passenger per mile
(passenger airfare revenue)/RPM
 PRASM = Passenger Revenue per Available Seat Mile
(passenger revenue)/ASM
Alaskan Airlines
Terms
 Fuel Consumed = Amount of fuel consumed over
some time
 Fuel Costs per ASM = Cost of Fuel per ASM
(total fuel cost)/ASM
 Non-Fuel Costs per ASM = Non-Fuel Cost per ASM
Wages, landing fees, depreciation and amortization,
maintenance and other operating expenses
Alaskan Airlines
Chart I
Airline Traffic, Output and Performance
Billions of Miles/Passenger Flown
25
1,000
0,900
20
0,800
0,700
15
0,600
RPM
0,500
10
0,400
0,300
5
0,200
0,100
-
0,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
ASM
SYST LOAD FACTOR
Alaskan Airlines
Chart I - Analysis
 After 9/11 , ASM and RPM slowly have recovered.
 Along with the increase in ASM supply, the airline
has managed to maintain a System Load Factor of
about 80% in the past 10 years.
Alaskan Airlines
Chart II
Total Operating Revenue and Expenses
$1 400
$1 200
Millions of Dollars
$1 000
$800
OPS REVENUES
$600
OPS EXPENSES
INCOME Before Taxes
$400
$200
$0
2001
-$200
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Alaskan Airlines
Chart II – Analysis
 Total Operating Revenues and Total Operating
Expenses have high correlation, which mean there is a
thin margin of profitability.
 In 2008, due to the increase of the price of oil the, at
the end of the fiscal year the airline end up with
deficit.
Alaskan Airlines
Chart III
Operating Revenue & Cost per Output
$0,070
$0,060
$0,050
Cents
$0,040
RASM
$0,030
CASM
Yield
$0,020
PRASM
$0,010
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
$0,000
Alaskan Airlines
Chart III – Analysis
 RASM, CASM, Yield, and PRASAM have a high
correlation.
 In 2008, there is a significant increase on CASM due to
the escalation in oil price.
Alaskan Airlines
Chart IV
Fuel & Non-Fuel Operating Expenses
$1 200
100
$800
$600
Millions of Gallons
Millions of Dollars
90
$1 000
80
70
60
50
40
$400
30
20
$200
10
$-
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
FUEL OPS EXPENSE
NON-FUEL OPS EXPENSES
SDOMT_GALLONS
Alaskan Airlines
Chart IV – Analysis
 The Non-Fuel Expenses are major operating costs and
they out weigh Fuel Expenses.
 Both expenses had a similar behavior.
Alaskan Airlines
Chart V
Unit Fuel & Non-Fuel Operating Expenses
$0,0600
$0,0500
$4,000
$3,500
CENTS
$0,0400
$0,0300
$0,0200
$2,500
$2,000
$1,500
$1,000
$0,0100
$-
$0,500
$-
US Dollars
$3,000
Fuel Operating Expenses per ASM
Non-Fuel Operating Expesnes per ASM
Jet Fuel Prices
Alaskan Airlines
Analysis of Fuel Price
 Effect on Expenses: Oil is the variable cost with more
weight in total operational expenses.
 Effect on Airline Finance: The profitability of this industry
depend s directly on the price of oil.
 Effect on Airline Network Structure: Since airlines do not
have any control on price of oil, the industry has had to
improved efficiency and keep the costs from growing in
other areas. (e.g. increasing Load Factor to reduce
costs).